Suntory to Buy Beam in $16 Billion Deal for U.S. Brand

Suntory Holdings Ltd., the closely held Japanese whiskey and beer maker, agreed to buy Beam Inc. (BEAM) for $16 billion including debt to gain brands such as Maker’s Mark whiskey and create the world’s third-largest premium spirits company.

Investors in the maker of Jim Beam and Canadian Club liquor will get $83.50 in cash per share, Osaka, Japan-based Suntory said yesterday in a statement. That’s 25 percent more than Beam’s closing price Jan. 10. The transaction value includes Beam’s debt, which wasn’t detailed in the statement. The company has $2 billion in long-term borrowings, data compiled by Bloomberg show. Based on Beam’s about 163.1 million shares outstanding, equity value would be $13.6 billion.

Suntory, the maker of Yamazaki whiskey and Premium Malt’s beer, is seeking to boost overseas growth as the population in its home country shrinks and ages. The company in 2012 had explored an offer for Beam alongside Diageo Plc. (DGE) Beam, whose largest shareholder is activist investor Bill Ackman’s hedge fund, in 2012 got 59 percent of its revenue from North America and 21 percent from Europe, the Middle East and Africa.

“Companies like Suntory have no choice but to go abroad because of the aging population in Japan,” Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo, said by telephone today. “They have acquired a blue-chip company with stable cash flow, so overall it is positive.”

Shares Surge

Beam rose 25 percent to $83.42 at the close in New York yesterday. The advance would mean a $342.5 million gain for Ackman’s Pershing Square Capital Management LP if its stake is unchanged from Sept. 30. The shares traded as high as $83.61, topping the offer price, indicating some investors expected competing bids. Deerfield, Illinois-based Beam gained 11 percent last year.

The takeover would be the largest overseas acquisition by a Japanese company since SoftBank Corp. (9984) acquired Sprint for $21.6 billion in a deal announced in 2012.

Fueled by a strong currency, Japanese companies embarked on an overseas buying spree that peaked with $113.5 billion worth of deals announced that year, data compiled by Bloomberg show. With the yen weakening, the value of overseas deals announced last year dropped to about $46 billion, the data show.

Mitsubishi UFJ Morgan Stanley advised Suntory, while Centerview Partners and Credit Suisse worked with Beam on the deal, according to the joint statement yesterday.

Year’s Biggest

The takeover is 2014’s biggest and the sixth-largest ever in the beverage industry, according to data compiled by Bloomberg. Beam was formed with the breakup of Fortune Brands Inc. in 2011. Since then, the company acquired Pinnacle Vodka & Calico Jack Rum Brands in 2012 and sold Select Brands last year.

Suntory’s offer values Beam at about 20.5 times earnings before interest, taxes, depreciation and amortization of $775 million in the year through September, data compiled by Bloomberg show. That compares with a median of 12 times historic Ebitda paid in 16 purchases of wine and spirits assets over the past five years, the data show.

“Strategically, it makes sense for Suntory,” said Trevor Stirling, an analyst at Sanford C. Bernstein & Co. in London. “I’m a little surprised they decided to go it alone, but at the moment there are low yen interest rates.”

November Talks

Acquisition talks with Beam began in November, Hasumi Ozawa, a Suntory Holdings spokeswoman, said in a telephone interview. Suntory will use cash and a bridge loan to finance the deal, she said.

Mitsubishi UFJ Financial Group Inc.’s lending arm provided financing for the deal, according to the statement.

Pernod Ricard SA, Europe’s second-largest spirits maker, is unlikely to make a counteroffer for Beam based on the valuation of the deal, said a person with knowledge of the matter.

Suntory’s offer is a “fair price,” and it is hard to predict if any other bidders will emerge, said Jack Russo, a St. Louis-based analyst at Edward Jones & Co.

“This industry has been going through some consolidation, similar to other sin industries,” Russo said in a telephone interview. “There’s not many pure-play alcohol companies left, so I think there was a scarcity value.”

Beam Chief Executive Officer Matt Shattock has recently tried to lure drinkers and boost revenue with flavored liquors, such as Pinnacle pumpkin pie vodka and maple bourbon. Net sales in the three months ended Sept. 30 fell 4.5 percent to $598.7 million as results in Beam’s Asia Pacific and South American region lagged the company’s expectations.

Demand Recovering

Global demand growth for spirits will be about 4.9 percent between 2013 and 2017, led by an 8.2 percent gain in Asia-Pacific, according to estimates from researcher Euromonitor International. That compares with 2.7 percent global increase for beer, 3 percent for wine and 1.7 percent for carbonates, the data show.

Diageo led the spirits industry with a 4.9 percent share as of 2012, followed by 4.7 percent for UB Group and Pernod-Ricard SA (RI) with 4.5 percent, according to Euromonitor.

In the U.S., Diageo has 26 percent of the market, followed by Beam with 19 percent and Brown-Forman Corp. (BF/A) with 18 percent, according to a July report by researcher IBISWorld Inc.

Ackman’s New York-based Pershing Square is Beam’s largest shareholder, with a 13 percent stake, according to data compiled by Bloomberg. Ackman, 47, is known for amassing stakes in companies and pushing them to make changes to boost share prices. He had owned a stake in Fortune Brands, which also sold Titleist golf gear, Moen faucets and Master Lock padlocks, and pushed the company to break up, leading to the split.

Bid Explored

Bloomberg News reported in December 2012 that Suntory had considered making an offer for Beam alongside Diageo, the world’s biggest distiller.

“Suntory has virtually no U.S. presence,” Mark Swartzberg, an analyst at Stifel Financial Corp. in New York, said in a research note yesterday. “This will take their share from less than 1 percent to 11 percent.”

The deal also gives Suntory a major presence in bourbons, he said.

Suntory Holdings walked away from merger talks with Kirin Holdings Co. (2503) in 2010 because it couldn’t secure control of a company that would have had 2010 sales of some $40 billion.

Overseas Deals

After the collapse of the deal, Nobutada Saji, head of Suntory Holdings and a grandson of founder Shinjiro Torii, led the family-controlled business to expand outside Japan.

Since he took over as president in 2001, Saji has bought French soda maker Orangina and New Zealand’s Frucor for a total of 376 billion yen ($3.64 billion). In 1980, when Saji was in charge of the U.S. division, Suntory bought a PepsiCo Inc. bottling company serving the East Coast for 20 billion yen.

Suntory is a household name in Japan, selling drinks from canned coffee to beer, sponsoring televisions shows, and operating its own fine art gallery and concert hall. Suntory Beverage & Food Ltd. (2587), the soft-drinks unit of Suntory Holdings, raised about $4 billion last year in Asia’s biggest initial public offering.

Overseas, it’s best-known by whiskey and movie buffs. Suntory’s Japanese single-malt whiskeys now regularly win top international awards, and actor Bill Murray’s character in the 2003 film “Lost in Translation” introduced the name to filmgoers with the line, “For relaxing times, make it Suntory time.”